Mid-size and smaller bank and credit unions face strong competition from the big banks in digital development because they can’t afford the costs. For mobile banking apps, which are the wave of the future, Javelin Strategy & Research named Bank of America Best in Class Mobile Banking App for the second year in a row. Navy Federal Credit Union and USAA finished close behind and joined six other banks which were cited as leaders: Ally Bank, BB&T, BBVA Compass, SunTrust, U.S. Bank, and Wells Fargo.

“There absolutely is an urgency with the mid-tier and smaller banks and credit unions,” said Jeffery Kendall, SVP & general manager at Kony DBX, a tech firm which builds sophisticated digital banking apps that can sit on legacy platforms from FIS, Fiserv and Jack Henry.

Jeffery Kendall SVP Kony DBXCourtesy Kony DBX

“Consumer digital experiences that are getting better and better are putting pressure on banks to make sure their experiences are up to par. If a customer opens a credit union mobile app they aren’t comparing you to the next credit union but to the Starbucks app they used this morning. The pace of innovation in retail and travel is rapidly changing and the mid-size credit union or bank doesn’t have digital budgets like Starbucks or Amazon. Legacy providers have trouble keeping up with cutting edge consumer digital apps.”

That’s where Kony comes in with its digital apps at a price that smaller institutions can afford.

The digital divide in banking is hitting smaller institutions in their deposits, Kendall said.

“Everyone is worried that these financial institutions are loaned out over 100%. The battle is to retain and grow deposits and they are struggling.”

Many customers maintain more than one account, he added.

“A credit union told me that 40 percent of their members had a Bank of America or Wells Fargo account. They saw the amount of deposits kept in the credit union was getting smaller and a bigger chunk was going to the primary financial institution.”

Individuals also have other places to store money, such as Venmo, PayPal or Starbucks — which has about $2 billion on deposit for its gift card accounts. Kendall recently transferred money from his Chase account, where it wasn’t earning any significant interest, to Robin Hood so he’d have cash to buy stocks.

“Chase lost on a deposit; consumers have a lot more options of where to store money.”

The result is that checking accounts have become parking garages for money, in the words of Ron Shevlin, the director of research at Cornerstone Advisors. Shevlin encourages banks to design new products.

As an example of new product design, Kendall pointed to the Kasasa Loan from Kasasa, an Austin, Texas-based financial technology and marketing services company that works with community banks. Its innovative loan lets borrowers pay extra to get ahead...and take back any extra if they need it. Because they have already been approved for the loan, the money is available immediately.

Kony recently bought Pivotus a personal banking platform from Umpqua Holdings Corporation, the parent company ofUmpqua Bank in Portland, Oregon. It displays a list of bank customer service staff with personal details such as runner, foodie, craft beer enthusiast, Sunday painter, etc. and lets customers select a person to be their dedicated contact at the bank. The platform concentrates all the customer information so the personal banker can call it up instantly and support up to 1,000 customers by phone or text.

“Kony DBX Engage offers one to one chat with a personal digital banker,” Kendall said. “It lets people have more of a human-to-human relationship. When people start to use it they get to know customers and their life events and look to sell new products.”

Banks have huge amounts of information about customers, although by some estimates they use only about five percent of it. And the information often isn’t granular enough to be very useful. If a customer spends $1,500 a month on an American Express or Chase Sapphire Card, all the bank sees is the transfer to the card company. Only Amex or Chase knows if the spending was for travel, dining out or shopping.

Kendall said he talked to the CEO of a $3 billion bank in Pennsylvania which has started issuing its own credit cards so it could get better information, and earn interchange fees. A credit union has developed an awards program based on the number of transactions through its debit cards.

Another example of niche marketing is The Redneck Bank “Where banking’s funner.” It’s an example of a digital brand aimed at people who don’t want to deal with stuffy bankers.

Kony has an innovation lab to help banks think up new ways to interact with customers. A credit union which sponsors a major sports team in their area uses location marketing to ping members when they walk into the stadium. It sends out some sports trivia and if they answer correctly they are entered into a lottery for a ticket upgrade, and they get an offer for a credit card.

“It’s an engaging moment,” said Kendall. “Give me personalized attention and service when I need it, but don’t bother me when I just want self-serve digital options.”

I like the pace of technology, especially in finance where it can move so fast. I'm on Jay Palter's list of fintech influencers to follow in 2018, although it takes a bit of scrolling: http://jaypalter.ca/2018/01/2018-fintech-influencers. In addition to Forbes I write for t...